Virtually any company could get bailout help

Published 5:00 am, Wednesday, October 29, 2008

An ice sculpture titled Main Street Meltdown melts on the 79th anniversary of Black Tuesday, the stock market crash that caused the Great Depression, as pedestrians pass by Wednesday in New York.

An ice sculpture titled Main Street Meltdown melts on the 79th anniversary of Black Tuesday, the stock market crash that caused the Great Depression, as pedestrians pass by Wednesday in New York.

Photo: Frank Franklin II, Associated Press

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A trader ponders his next move in the S&P 500 stock index futures pit at the Chicago Board of Trade on Wednesday, soon after the announcement by the Federal Reserve that it would cut a key interest rate.

A trader ponders his next move in the S&P 500 stock index futures pit at the Chicago Board of Trade on Wednesday, soon after the announcement by the Federal Reserve that it would cut a key interest rate.

Photo: Scott Olson, AFP/Getty Images

Virtually any company could get bailout help

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WASHINGTON — As the list of ailing companies seeking government help grows, it is anybody’s guess where the Treasury Department’s largess will stop.

The $700 billion bailout bill is so vague that virtually any U.S. company could be eligible for government help.

While the capital infusions announced this month will be directed only to banks, Treasury spokeswoman Brookly McLaughlin confirmed the law allows the department to create other rescue programs “open to a broader set of financial institutions.”

As the bill is written, “financial institutions” don’t have to be banks or financial entities. In theory, any company could declare itself a financial institution and ask Treasury to grant it temporary aid if its rescue is deemed “necessary to promote financial market stability.”

'Barn doors left open’

Critics said Congress should have set a clearer definition for the kinds of companies that could be rescued.

“Talk about the barn doors being left open — it’s like they left off the walls and roof, too,” said Bert Ely, an independent banking consultant. He suggested that under the bill, an airline could transfer future revenue streams into a subsidiary and ask the government to buy shares in that new “financial institution.”

The only limit to what Treasury could do, Ely said, is the bill’s $700 billion ceiling.

Representatives of the auto, insurance and other industries are already seeking government help, indicating they think they qualify because of their financing units. But McLaughlin’s statement suggests that even companies without financing operations could qualify as well.

No company outside of banking, insurance or auto manufacturing has yet said it will ask for aid from the bailout. But airlines and home builders are lobbying for government help to prop them up through the economic downturn — either under the bailout bill or some other legislation.

And if insurance and auto lobbyists succeed in their efforts to tap the bailout money, experts said other industries would probably follow.

“Home builders employ a lot of people, and they’re probably in crisis mode,” said Tom Runiewicz, an industrial economist at consulting firm Global Insight. “If the auto sector is in line for funding, why not the home builders?”

Housing sector’s case

Dave Seiders, chief economist for the National Association of Home Builders, said his group is more likely to focus on a proposed new stimulus package that congressional Democrats are pushing. But he stressed that “the housing sector is still at the core of the economy’s difficulty and the financial market’s stability” and so might qualify for part of the $700 billion.

In fact, the modern economy is so interconnected that virtually any business could argue for its importance to the broader markets, agreed Daniel Meckstroth, chief economist with the Manufacturers Alliance, an industry group.

“The trouble is, you’re picking and choosing. You’re deciding who’s going to win and who’s going to lose,” Meckstroth said. “It’s kind of like applying this ‘too big to fail’ doctrine to the private sector, and it’s not fair.”

“Too big to fail” is how federal officials justified decisions earlier this year to bail out mortgage giants Fannie Mae and Freddie Mac and insurer American International Group.

Wider help possible

Treasury’s McLaughlin would not rule out the possibility that nonfinancial companies could benefit from the law’s ambiguity, and she would not say whether such discussions have been held.

A spokesman for the House Financial Services Committee, which helped draft the legislation, agreed that the loose definitions in the bill could open the door to nonfinancial companies lining up for aid.